Global investment into Victoria’s property sector has dropped from over $10 billion to $5 billion in three years – a 53% decline – according to a new report commissioned by the Property Council of Australia.
The Mandala Partners report found institutional investment in commercial and large-scale residential projects has plunged, with Victoria now attracting about 40% less global investment per capita than New South Wales.
The report examines how land tax surcharges have discouraged large global investors – including pension and sovereign wealth funds – that traditionally back housing, retail, industrial, and office developments in partnership with local developers.
If Victoria’s absentee owner surcharge were reduced, the report estimates the state could attract an extra $5.7 billion in investment, boost GDP by $2.5 billion, and create 5,900 jobs by 2030 – equivalent to the entire West Gate Tunnel Project, AFR reported.
Nationally, abolishing similar foreign investor taxes across Victoria, NSW, and Queensland could unlock $8.1 billion in new investment, create 8,400 jobs, and add $3.6 billion to GDP by 2030, the Property Council said.
Property Council executive director Torie Brown (pictured left) said abolishing the absentee owner surcharge would generate up to $10 in economic activity for every $1 lost in revenue, while unlocking housing and infrastructure development.
“While these taxes were initially introduced to limit the ability of foreign nationals to buy up established houses they wouldn’t live in, these taxes also significantly stymie the money needed to supply new Australian property, including housing and new commercial developments,” Brown said.
State and territory governments impose these annual surcharges on foreign buyers of residential and commercial property – in addition to federal Foreign Investment Review Board fees. Queensland and Victoria are the only states applying them to commercial assets such as office buildings, build-to-rent projects, and student accommodation.
Brown said that around 70% of the projected $8.1 billion investment gain would go to Victoria, which she said has the “most prohibitive system.”
Brown said Victoria’s decision to double its surcharge to 4% in 2024 has made investors wary.
“We’ve increasingly heard the word ‘uninvestable’ whispered when it comes to Victoria,” she said. “Global investors look for policy certainty when they make decisions about deploying capital, but the Victorian government has continued to move the tax goal posts.”
A foreign investor purchasing a $50 million office building in Victoria would now pay about $3.3 million in annual land tax – compared with $1 million in NSW, AFR reported.
“It has meant potential future projects, including large-scale residential, office, student accommodation and industrial, just simply do not stack up,” Brown said.
MSCI researcher Ben Martin-Henry noted a slight recovery in overseas commercial property investment in 2025 – led by Sydney, with some improvement in Melbourne.
“Melbourne has picked up in the last quarter. We’re probably a bit above last year, so it is getting there,” he said, adding that the uptick followed a “very low” 2024.
Martin-Henry said tax settings contributed to the slowdown, alongside high office vacancy rates from a surge in supply and ongoing work-from-home trends. Melbourne currently has the highest CBD vacancy rate of any Australian capital city.
“State governments should look at the bigger picture – rather than taxing to support their bottom line, they should encourage investment to support their economy,” Brown said.
K&L Gates partner Matthew Cridland said that while some support foreign buyer surcharges to cool prices, FIRB rules already limit them to new dwellings only.
“Foreign purchases are already restricted, under FIRB rules, to acquiring new residential properties only. They can’t buy existing residential stock,” Cridland said.
Cridland added that High Court challenges from foreign investors were dismissed after 2024 legislation confirmed the surcharges override international tax treaties and apply retrospectively.
Property Council Victorian executive director Cath Evans (pictured right) said removing foreign investor surcharges would help unlock housing supply and restore Victoria’s competitiveness.
“These taxes are holding back billions of dollars that could be creating jobs, housing and infrastructure right here in our state,” Evans said. “Victoria has traditionally been a magnet for global capital. We need to see urgent tax reform to ensure it remains a powerhouse of Australia’s economy.”
For mortgage and commercial brokers, the retreat of global capital highlights opportunities for local development lending and syndicate funding as offshore investment slows.
However, without reform, the Property Council warns that Australia risks losing a key pipeline of institutional capital critical to build-to-rent, large-scale residential, and urban renewal projects.
Get the hottest and freshest mortgage news delivered right into your inbox. Subscribe now to our FREE daily newsletter.
